I N H E R I TA N C E T A X

Inheritance tax
When a chargeable person would make a transfer of value of a chargeable
property in a gratuitous way.

Chargeable person

Individual and trusts.

Chargeable Property

For a UK domiciled individual worldwide property will be chargeable.

Transfer of value

A transfer of value is a gift of any asset which results in a reduction in

the value of the donor’s estate.

Value of estate before gift XX

Less: Value of estate after gift (x)
Diminution in value or transfer of value XX

Example
Linda owns 6,000 shares, which represents a 60% holding, in Loot
Ltd. On 31 December 2023 she gave a 20% holding in the company to
her friend, Bob.
 The values of shareholdings in Loot Ltd on 31 December 2023 have
been agreed for IHT purposes as follows:
Holding Value per share
Up to 25% £9
26% to 50% £15
51% to 74% £26
75% or more £45

Calculate Linda’s transfer of value relating to the gift of unquoted

shares for IHT purposes.

Value of estate before gift 6000 X26 I 156000

Less: Value of estate after gift 4000 X 15 = 60000

Diminution in value or transfer of value 96000

 Types of transfers

Life time transfers

Death transfers

Types of life time transfer

W
Exempt Potentially exempt Chargeable life time
transfer transfer (PET) transfer (CLT)

A gift that is A gift by an Gifts into trusts.

specifically individual
deemed to be to another
exempt individual
from IHT
During life time
No IHT payable, only IHT is to be paid
gross chargeable by calculating
No IHT payable amount using
is to be calculated the lifetime rates
of tax
If Donor lives 7 years
No IHT payable No further IHT
No IHT payable Gift becomes Exempt payable

If Donor dies within 7 years

The PET becomes IHT is calculated using
chargeable on death the death rates of
No IHT payable for the tax, and life time Tax
first time is deductible.
 Lifetime Calculations on Lifetime Transfers

For potentially exam transfers ( PET)

Value of estate before transfer xxxx
Value of estate After transfer (xxx)
Transfer of Value xxx xxxx
Less: Exemptions
Small gift (xx)
Marriage Exemptions (xx)
Annual Exemption(s) (xx)
Chargeable Amount xxx

Small gift exemption

Lifetime gifts are exempt if they are:
an outright gift to an individual of no more than £250
per recipient
per tax year.
The small gift exemption does not apply if the gift is more than £250.
Therefore, a gift of £300 does not qualify. Similarly, if an individual makes
a gift of £240 to a person followed by another gift of £100 to the same
person in the same tax year, neither gift is exempt.

Marriage exemption

A lifetime transfer made 'in consideration of a marriage' (or the registration

of a civil partnership) is exempt up to the following maximum limits:
£5,000 by a parent
£2,500 by a grandparent or remote ancestor
£2,500 by a party to the marriage or civil partnership (e.g.
from the groom to the bride)
£1,000 by anyone else.
 The exemption is conditional on the marriage taking place.

Normal expenditure out of income

To claim this exemption an individual has to prove the following to HMRC;

There is no impact upon standard of living of donor because of making

transfer.
And
Amount transferred was expense out of income not asset out of estate.

To be treated as 'normal', gifts must be habitual (i.e. there is a

regular pattern of giving). For example, payment of school fees for a
grandchild or annual payments into a life insurance policy for the
benefit of a child are usually exempted under this rule.

The annual exemption

It is £3,000 per tax year and if there is any unused annual exemption,
of any tax year it could be carried forward, but for one tax year only.
The maximum AE in any one year is therefore £6,000 (£3,000 x 2).
If other exemptions are available, they are given before the AE.

Calculation For chargeable lifetime transfer (CLTs)

£
Value of estate before transfer xxx
Value of estate After transfer (xxx)
Transfer of Value xxx
Less: Exemptions
Annual Exemption(s) (xx)
Chargeable Amount xxx
Calculate Lifetime Tax Using Life time Rates as well
 Meron made the following lifetime gifts:
(a) 31 August 2021, £600, to her son
(b) 31 October 2021, £800, to a trust
(c) 31 May 2022, £2,100, to a trust ~
(d) 30 November 2022, £1,100, to a trust
(e) 30 April 2023, £5,000, to her daughter.~
Calculate the chargeable amount after AEs for each of the gifts.

31/8/2021 31/10/2021
21/22 21/22
PET CeT

Trasfer of Value Goo 800

AE =
21/22 (600) (800)
-
-

31/5/22 30111/2022
22123 22/23
CeT CCT

Transfer of value 2100 1100

AE = 22123 (2100) (900)

22/23
-

21/22 (200)
-

30/4/2023
23124
PET

Transfer of value 5000

AE =
23124 13000)
22123 -

Amount Sooo
chargeable
 Inter-spouse exemption
Transfers between spouses, or between partners in a registered civil
partnership, are exempt:
Regardless of the value of the transfer, and
whether made during the donor’s lifetime or upon the donor’s death.

Felipe made the following lifetime transfers:

(a)
S Unquoted shares worth £525,000 in the family company to his.
husband on 1 June 2023. Exempt
(b) £15,000 to his son on 6 July 2023 as a wedding present.
(c) £20,000 to his nephew on 27 September 2023. ~
(d) £235 to a friend for her 40th birthday on 4 November 2023. Exempt
/
(e) £270,000 into a trust on 24 December 2023.

Calculate the chargeable amount for each of Felipe’s lifetime gifts.

PET PET CLT

6/7/2023 27/9/2023 24/12/2023
23/24 23/24 23/24
Transfer of value 15000 20 ,000 27000 0

Marriage exemption (5000) -

-

Annual exemption
23/24 13000) - -

22/23 (3000) -
-

Chargeable amount 4000 20000 270000

Life time Rates For CLTs

If Donee/Trustees If Donor Paying

Paying IHT
IHT
Chargeable amount
fall within Nil Rate Nil % Nil%
Band £325,000

Chargeable amount 20% 25%

Above £325,000

The normal due date of payment of lifetime IHT

The date of payment of lifetime IHT depends on the date of the gift:
Date of CLT Due date of payment
6 April to 30 September 30 April in the following year
1 October to 5 April Six months after the end of the
month of the CLT

Kendall makes a gift into a trust on 13 June 2023 of £366,000.

They have made no previous lifetime gifts.
Calculate the amount of lifetime IHT due on the gift into the trust
and state the gross chargeable amount of the gift to carry forward
for future computations, assuming:

(a) the trustees of the trust have agreed to pay any IHT due.
(b) Kendall has agreed to pay any IHT due.

State the due date for payment of tax in both cases.

 a) Trustees to Pay IHT 13/6/2023
23/24
CLT
£
Transfer of value 366000

Less: Annual exemption

23/24 (3000)

22/23 (3000)

Chargeable amount 360000

NRB @ date of gift (325000)

Taxable amount 35000

IHT payable @ 20% 35000 X 20% I 700 o

Due date 3014/2024

Gross chargeable amount c/f 360000

13/6/2023
b) Kendall to Pay IHT 23/24
CLT
£
Transfer of value 366000

Less: Annual exemption

23/24 (3000)

22/23 (3000)

Chargeable amount 360000 v

NRB @ date of gift (325000)

Taxable amount 35000

IHT payable @ 25% 35000 X25% 8750

Due date 301a/2024

Gross chargeable amount c/f 360000 + 8750 = 368750
 During his lifetime Alex had made the following gifts:
30 June 2013, £170,000 to a trust
12 June 2017, £150,000 to his daughter
30 June 2018, £191,000 to a trust
15 December 2023, £256,000 to a trust

The trustees of the first two trusts paid the IHT liabilities. Alex paid
the tax on the last gift.
The nil rate bands for earlier years are as follows:
2013/14 £325,000
2017/18 £325,000
2018/19 £325,000

Calculate the IHT arising as a result of Alex’s lifetime transfers.

State who will pay the tax, the due date for payment and the gross
chargeable amount of each gift to carry forward to future
computations.

30/6/2013
13/14
CLT
Transfer of value
Less: Annual exemption
Current year
Previous year
Chargeable amount
NRB @ date of gift
Less: GCTs of previous 7 years
Less: NRB Available
Taxable amount
IHT payable @ 20%
 Due date
Gross chargeable amount c/f

12/6/2017
17/18
PET
Transfer of value
Less: Annual exemption
Current year
Previous year
Chargeable amount

Gross chargeable amount c/f

30/6/2018
18/19
Transfer of value CLT
Less: Annual exemption
Current year
Previous year
Chargeable amount
NRB @ date of gift
Less: GCTs of previous 7 years
Less: NRB Available
Taxable amount
IHT payable @ 25%

Due date
Gross chargeable amount c/f
 15/12/2023
23/24
Transfer of value CLT
Less: Annual exemption
Current year
Previous year
Chargeable amount
NRB @ date of gift
Less: GCTs of previous 7 years
Less: NRB Available
Taxable amount
IHT payable @ 20%

Due date
Gross chargeable amount c/f
 During his lifetime Yuuma had made the following cash gifts:
21 April 2011, £98,000 to a trust (trustees to pay tax)
15 April 2017, £140,000 to his son
19 March 2018, £234,000 to a trust (Yuuma to pay tax)
9 May 2023, £395,000 to a trust (trustees to pay tax)
Calculate the IHT arising as a result of Yuuma’s lifetime transfers.

21/4/2011
11/12
CLT
£
Transfer of value
Annual exemption
Current year
Previous year
Chargeable amount
NRB @ date of gift
Less: GCTs of previous 7 years
Less: NRB Available
Taxable amount
IHT payable @ 20%

Due date
Gross chargeable amount c/f

15/4/2017
17/18
PET
Transfer of value
Annual exemption
Current year
Previous year
 Chargeable amount

10/3/2018
18/19
CLT
Transfer of value
Annual exemption
Current year
Previous year
Chargeable amount
NRB @ date of gift
Less: GCTs of previous 7 years
Less: NRB Available
Taxable amount
IHT payable @ 20%

Due date
Gross chargeable amount c/f

9/5/2023
23/24
CLT
£
Transfer of value
Annual exemption
Current year
Previous year
Chargeable amount
NRB @ date of gift
Less: GCTs of previous 7 years
Less: NRB Available
Taxable amount
IHT payable @ 20%

Due date
Gross chargeable amount c/f